• Reduction of quarterly dividend to $0.19 per ordinary share and declaration of such dividend

• Launch of Operational Transformation Program

• Strategic review of Life Reinsurance Operations

• Expense initiative to take effect in Q3 2008

• Changes to Executive Management

Hamilton, Bermuda, July 28, 2008 -- XL Capital Ltd ("XL" or the "Company") (NYSE: XL) announced today that XL and certain of its subsidiaries have entered into an agreement (the "Master Agreement") with Security Capital Assurance Ltd and certain of its subsidiaries (sometimes collectively referred to herein as "SCA") in connection with the termination of certain reinsurance and other agreements as described below. Certain of the counterparties to credit default swap agreements with SCA are also parties, and others may become parties (at any time on or prior to the closing under the Master Agreement), to the Master Agreement. Such counterparties that are or become party to the Master Agreement are herein called the "Counterparties."

The Master Agreement provides for the payment by XL to SCA of $1.775 billion in cash, the issuance by XL to SCA of eight million Class A Ordinary Shares to be newly issued by XL and the transfer by XL of all of the shares it owns in SCA (representing approximately 46% of SCA's issued and outstanding shares) (the "SCA Shares") to a trust. This consideration will be made in exchange for, among other things, the full and unconditional:

Commutation of the Third Amended and Restated Facultative Quota Share Reinsurance Treaty, effective July 1, 2006, between XL Financial Assurance Ltd. ("XLFA") and XL Capital Group Assurance Inc. ("XLCA"), and all individual risk cessions thereunder, as a result of which the guarantee by XL subsidiary XL Insurance (Bermuda) Ltd ("XLIB") of XLFA's obligations to XLCA thereunder (the "XLFA Guarantee") will no longer have any force or effect;

Commutation of the Excess of Loss Reinsurance Agreement, executed on October 3, 2001, pursuant to which XLIB agreed to reinsure certain liabilities of XLFA (the "Excess of Loss Agreement");

Commutation of the Second Amended and Restated Facultative Master Certificate, effective March 1, 2007, pursuant to which XL Re America, Inc. ("XLRA") agreed to reinsure certain liabilities of XLCA, and all individual risk cessions thereunder (the "XLRA Master Facultative Agreement");

Commutation of the Facultative Quota Share Reinsurance Agreement, effective August 17, 2001, as amended by Amendment No. 1 to such agreement, dated as of August 4, 2006, pursuant to which XLIB agreed to reinsure certain liabilities of XLFA and all individual risk cessions thereunder;

Commutation of the Adverse Development Reinsurance Agreement, dated as of August 4, 2006, between XLCA and XLRA, and the Indemnification Agreement, dated as of August 4, 2006, between XLFA and XLIB; and

Termination of certain indemnification and services agreements between XL and SCA.

After giving effect to the closing of the Master Agreement, $64.6 billion of the Company's total net exposure (which was $65.7 billion as at June 30, 2008) under reinsurance agreements and guarantees with SCA subsidiaries will be eliminated.

Pursuant to the terms of the Master Agreement, SCA will be required to use commercially reasonable efforts to commute the agreements that are the subject of the Company's guarantee of XLCA's obligations under certain financial guarantees issued by XLCA to European Investment Bank (the "EIB Policies"), subject to certain limitations. In the event such commutations are not completed by the closing of the Master Agreement, XL's exposures relating to the EIB Policies (which relate to project finance transactions) as of June 30, 2008 would be approximately $1.1 billion.

The Company expects to record a charge of between $1.4 billion and $1.5 billion in respect of the Master Agreement in the quarter ending September 30, 2008.

It is expected that the SCA Shares will be transferred at closing of the Master Agreement into a trust for the benefit of XLFA and/or XLCA until such time as an agreement between XLCA and the Counterparties is reached, and thereafter the trust will act for the benefit of the Counterparties. To the extent that the required regulatory approvals for the transfer are not received prior to such closing, the SCA Shares will be deposited into escrow pending the transfer. Upon any such deposit into escrow, XL will irrevocably disclaim any and all voting, economic or other rights with respect to the SCA Shares.

As part of the transaction, the Counterparties will provide releases to XL and SCA.
The Company and SCA have obtained approval from the New York State Insurance Department for the Master Agreement and each of the commutations to which XLRA or XLCA is a party. SCA has also obtained applicable approvals from the Bermuda Monetary Authority, the Delaware Insurance Department and other regulators.

In addition to customary closing conditions, the Master Agreement is conditioned on the commutation by SCA of the Amended and Restated Master Facultative Reinsurance Agreement, dated November 3, 1998, between Financial Security Assurance, Inc. ("Financial Security") and XLFA, and all individual risk cessions thereunder. As a result of this commutation, XL's guarantee of XLFA's obligations thereunder ("Financial Security Guarantee") will no longer have any force or effect. SCA announced today that it has entered into an agreement with Financial Security to commute such agreement simultaneously with the closing of the Master Agreement.

The closing is also conditioned upon the termination of eight Merrill Lynch International ("Merrill Lynch") asset backed security collateralized debt obligation credit default swaps entered into between Merrill Lynch and SCA. SCA announced today that it has entered into an agreement with Merrill Lynch to terminate such agreements simultaneous with the closing of the Master Agreement.

The closing of the Master Agreement is also conditioned upon the successful completion of XL's capital raise (as described below). The closing of the transactions contemplated by the Master Agreement is expected to take place in early August 2008 and concurrently with the closing of the capital raise discussed below. The parties may choose to terminate the Master Agreement if the closing does not occur by August 15, 2008.

In order to fund the payments described above, XL separately announced today that it currently plans to sell approximately $2.5 billion of securities in a combination of ordinary shares and equity security units pursuant to the Company's existing shelf registration statement. This press release does not constitute an offer to sell or the solicitation of an offer to buy any ordinary shares or equity security units.

Other Transactions

XL also intends to (i) exercise the put option under its Mangrove Bay contingent capital facility entered into in July 2003 resulting in net proceeds to the Company of approximately $500 million in exchange for the issuance by the Company of 20,000,000 Series C Preference Ordinary Shares and (ii) upon XL's completion of its capital raise (as discussed above) and the closing of the transactions contemplated by the Master Agreement, redeem X.L. America, Inc.'s outstanding $255.0 million 6.58% Guaranteed Senior Notes due April 2011. In connection with this redemption, the Company expects to record an additional charge of approximately $21.8 million in the quarter ending September 30, 2008.

Second Quarter Results

For the quarter ended June 30, 2008, XL recorded net income available to ordinary shareholders of $237.9 million as compared to $544.5 million for the quarter ended June 30, 2007 and "net income excluding realized gains and losses"(1) of $266.2 million as compared to $526.3 million in the prior year quarter. The key elements are as follows:

A solid underwriting performance with gross written premiums for the quarter of $1,947.5 million, a reduction of 12.7% from the prior year quarter which included gross written premiums of $52.0 million from SCA. Gross written premiums for the current quarter included $1,388.8 million from the Insurance segment and $397.5 million from the Reinsurance segment compared with $1,417.9 million and $526.3 million, respectively, in the prior year quarter. The loss ratio for the quarter was 62.2% with a combined ratio of 92.3% as compared to 56.9% and 86.3%, respectively, in the prior year quarter. The results for the current quarter benefited from favorable prior year development of $182.6 million but were adversely affected by $98.1 million of natural catastrophe losses. In the prior year quarter there was favorable prior year development of $124.1 million offset in part by $30.0 million of natural property catastrophe losses. Further details of the performance of the operating segments are set out below.

A charge of $82.4 million arising from guarantee and reinsurance agreements with SCA. This was comprised of $22.7 million in respect of the XLRA Master Facultative Agreement, $3.7 million for the unwinding of the discounted loss reserves in respect of the Excess of Loss Agreement and $56.0 million in respect of the XLFA Guarantee.

A contribution of $28.2 million from the Life Operations segment and a contribution of $6.2 million from the Other Financial Lines segment compared with contributions of $24.7 million and $6.8 million, respectively, in the prior year quarter.

Net investment income from P&C operations, excluding investment income from structured products, was $298.1 million as compared to $323.0 million in the prior year quarter. Net investment income from P&C structured products was $25.1 million as compared to $31.0 million in the prior year quarter. Both reductions were caused principally by lower average yields for the period. There was a net loss of $20.4 million from investment affiliates as compared to a profit of $67.0 million in the prior year quarter and net income from investment manager affiliates of $1.7 million compared to $43.9 million in the prior year quarter. Both results reflected the difficult market conditions during the period.

Net income from financial and operating affiliates, excluding the SCA related charges noted above, was $11.7 million as compared to a loss of $2.2 million in the prior year quarter.

There were net realized gains of $2.0 million in the quarter arising from the Company's investment portfolio including a charge of $47.7 million for other than temporary impairments. In the prior year quarter, XL recorded net realized gains of $18.3 million. The 2007 total included a gain of $81.3 million on the sale by XL of shares of SCA.

Operating expenses for the quarter were $298.3 million as compared to $306.6 million in the prior year quarter. The expense for the current quarter was lower than the prior year quarter principally due to the inclusion in the prior year quarter of $19.5 million of expenses relating to SCA from the time that it was a subsidiary. The underlying increase in operating expenses was caused principally by $17.0 million arising from the US Dollar being weaker than in the prior year quarter, professional fees of $10.9 million incurred in connection with the Company's negotiations with SCA and $9.5 million of expenses from the XL GAPS business that was acquired in the fourth quarter of 2007. These items were offset in part by lower accruals for performance based compensation.

For the first half of 2008, net income available to ordinary shareholders was $449.7 million as compared to $1,094.3 million in the prior year period. "Net income excluding net realized gains and losses" for the same period was $543.1 million compared to $1,066.3 million in the prior year period.

The Company's ordinary shareholders' equity at June 30, 2008 was $7.77 billion, a reduction of $486.2 million from $8.26 billion at March 31, 2008. This reduction reflected the net income for the quarter offset by an increase of $686.3 million in unrealized losses within the investment portfolio, caused principally by interest rate increases in the quarter. Further details on the Company's investment portfolio are set out in the Company's Second Quarter Financial Supplement and Second Quarter Structured Credit Data presentations that are available on the Company's website at www.xlgroup.com. Book value per ordinary share at June 30, 2008 was $43.39.